Bankruptcy No: 6:10-bk-05920-ABB
The opinion of the court was delivered by: Paul A. Magnuson United States District Court Judge
This matter is before the Court on an appeal from a January 26, 2011 United States Bankruptcy Court Order ("Order") of Judge Arthur B. Briskman. The Order found that $359,697.46 withdrawn from a BB&T bank account and transferred into the Tommie A. Quaid Trust ("Trust") was not exempt from the bankruptcy estate of Richard A. Quaid ("Quaid"). (Bankr. Docket No. 51.) Quaid appeals the Bankruptcy Court's Order. (Docket No. 1.) For the reasons that follow, the Order is reversed.
Quaid's wife, Tommie A. Quaid ("Tommie"), established the Trust on March 2, 2005. The Trust designated Tommie as its Grantor and Trustee and granted her sole authority to manage, control, and withdraw Trust assets. Quaid was not permitted to control the Trust's assets. The Trust provided that, if Quaid survived Tommie's death, Quaid and his son were to become co-Trustees. Upon Tommie's death, Trust assets were to be used for three purposes. First, assets would be used to pay for Tommie's final medical expenses and the administration of her estate. Second, assets would be used to pay obligations due to the facility in which Tommie's father is living. Third, assets would be used to establish a marital trust and credit shelter trust for Quaid's benefit. The Trust did not define a specific amount of money or a specific percentage of assets that were to be used for each purpose. The Trust provided that it would become irrevocable upon Quaid's death, and it contained a spendthrift clause to shield assets from any creditors of the beneficiaries.
Quaid and Tommie maintained a Bank of America account held as tenants by the entirety ("TBE"). Some of the money in the Bank of America account came from Quaid's earnings which previously had been held in a trust established by Quaid to benefit Tommie. These funds were not held as TBE before being transferred into the Bank of America account.
On May 6, 2009, Quaid and Tommie opened a BB&T account also as TBE. Quaid and Tommie transferred $310,000.00 into the BB&T account from the Bank of America account. On September 11, 2009, Quaid and Tommie withdrew all $359,697.46 in the BB&T account and transferred it to the Trust. Quaid has contributed no other assets to the Trust besides the $359,697.46.
Tommie died in January 2010, and Quaid and his son became Co-Trustees of the Trust. Both resigned as Co-Trustees in February 2010, and Edward Fernandez ("Fernandez"), a friend of Quaid's, became the Trustee on February 19, 2010.
On March 10, 2010, Appellees Baybrook Homes of Polk County, LLC, Braxton Green, Jr., Eleanor Green, and Estates of Lake Wales, LLC ("Appellees") were awarded a $3,248,000.00 judgment against Quaid in a lawsuit. Quaid filed a Chapter 7 bankruptcy petition on April 9, 2010. In his petition, Quaid claimed an exemption for his beneficial interest in the Trust. Quaid claimed the Trust's spendthrift provision precluded his creditors from reaching his interest in the Trust, and made his interest exempt pursuant to 11 U.S.C. § 541(c)(2).
Appellees filed an Amended Objection to attempt to disallow Quaid's claimed exemption. After conducting an evidentiary hearing, Judge Briskman entered the Order from which Quaid now appeals. The sole issue on appeal is whether the Bankruptcy Court properly concluded that the $359,697.46 transferred into the Trust should be included as part of Quaid's bankruptcy estate.
Upon entry of a final order by the bankruptcy court, a party may appeal to the district court pursuant to 28 U.S.C. § 158(a). The district court functions as an appellate court in reviewing decisions of the bankruptcy court, reviewing its legal conclusions de novo and employing the clearly erroneous standard in reviewing its findings of fact. In re Colortex Industries, 19 F.3d 1371, 1374 (11th Cir. 1994). A dispute regarding whether a beneficiary is also a settlor of a trust is a question of law reviewed de novo. See Firestone Tire & Rubber Co. v. Burch, 489 U.S. 101, 112 (1989) (explaining that disputes regarding the interpretation of a trust agreement provision are reviewed de novo).
A bankruptcy estate consists of all interests in property possessed by the debtor at the time he files for bankruptcy. 11 U.S.C. § 541(a)(1). If there is a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable non-bankruptcy laws, then the restriction is enforceable when creating the bankruptcy estate. Id. § 541(c)(2). Thus, spendthrift trusts are excluded from a debtor's bankruptcy estate to the extent applicable state law protects them from ...